1128495--3/3/2009--ANADYS_PHARMACEUTICALS

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{product, candidate, development}

{stock, price, operating}

{product, liability, claim}

{property, intellectual, protect}

{control, financial, internal}

{acquisition, growth, future}

{provision, law, control}

{loan, real, estate}

{cost, regulation, environmental}

{personnel, key, retain}

{cost, operation, labor}

{system, service, information}

{competitive, industry, competition}

{product, market, service}

{stock, price, share}

Raising additional funds by issuing securities or through debt or project financing or strategic alliances and licensing arrangements may cause dilution to existing stockholders, restrict our operations or require us to relinquish proprietary rights. We are at an early stage of development, and we may never attain product sales. We expect our net operating losses to continue for at least several years, and we are unable to predict the extent of future losses and when we will become profitable in our business operations, if ever. The technologies on which we rely are unproven and may not result in the development of commercially viable products. Because the results of preclinical studies and early clinical trials are not necessarily predictive of future results, we can provide no assurances that ANA598 or ANA773 will have favorable results in future clinical trials, or receive regulatory approval. We intend to develop ANA598 and ANA773 as components of combination treatments, which presents additional challenges to the drug development process. Fast track designation does not guarantee approval, or expedited approval, of ANA598 and there is no guarantee that ANA598 will maintain fast track designation. We are currently investigating ANA773 in both HCV and cancer. Any setback with the compound in one program could adversely affect our ability to develop it for the other indication, which would cause our business and stock price to suffer. In 2007 we terminated our ANA975 development program due to challenges seen in animal toxicology studies. To the extent that the ANA975 toxicology observations are mechanism related, our ANA773 programs for cancer and hepatitis C could be negatively impacted, causing our stock price to decline. We are currently conducting a Phase I clinical trial of ANA773 in oncology and are continuing to recruit patients. If patient enrollment does not move as quickly as we would like, our future development activities for ANA773 in oncology could be delayed, which could cause our stock price to decline. We have recently completed dosing in a Phase 1 clinical trial of ANA773 for HCV in the Netherlands and are in the process of determining the next steps for the program. There is no guarantee that we will be able to efficiently pursue the development of ANA773 as a treatment for HCV. Our securities available-for-sale held in the form of marketable securities are subject to market, interest and credit risk that may reduce their value Delays in the commencement of clinical testing of our current and potential product candidates could result in increased costs to us and delay our ability to generate revenues. Delays in the completion of, or the termination of, clinical testing of our current and potential product candidates could result in increased costs to us and delay or prevent us from generating revenues. We will need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our development programs. If our efforts to obtain rights to new products or product candidates from third parties do not yield product candidates for clinical development or are not otherwise successful, we may not generate product revenues or achieve profitability. Even if we successfully complete clinical trials of ANA598, ANA773 or any future product candidate, there are no assurances that we will be able to submit, or obtain FDA approval of, a new drug application. If we successfully develop products but those products do not achieve and maintain market acceptance, our business will not be profitable. We depend on outside parties to conduct our clinical trials, which may result in costs and delays that prevent us from obtaining regulatory approval or successfully commercializing product candidates. We do not have internal manufacturing capabilities, and if we fail to develop and maintain supply relationships with future collaborators or other outside manufacturers, we may be unable to develop or commercialize any of our products. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any products we may develop, we may not be able to generate product revenue. If we are unable to attract and retain key management and scientific staff, we may be unable to successfully develop or commercialize our product candidates. Our quarterly results and stock price may fluctuate significantly. If we engage in any acquisition, we will incur a variety of costs, and we may never realize the anticipated benefits of the acquisition. Earthquake or wildfire damage to our facilities could delay our research and development efforts and adversely affect our business. Risks Related to Our Industry Because our product candidates and development and collaboration efforts depend on our intellectual property rights, adverse events affecting our intellectual property rights will harm our ability to commercialize products. If we are sued for infringing intellectual property rights of others, it will be costly and time- consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business. We may be involved in lawsuits or proceedings to protect or enforce our patent rights, trade secrets or know-how, which could be expensive and time- consuming. Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information and may not adequately protect our intellectual property. Many competitors have significantly more resources and experience, which may harm our commercial opportunity. If our competitors develop treatments for HCV or cancer that are approved faster, marketed better or demonstrated to be more effective than ANA598, ANA773, or any other products that we may develop, our commercial opportunity will be reduced or eliminated. If we cannot establish pricing of our product candidates acceptable to the government, insurance companies, managed care organizations and other payors, any product sales will be severely hindered. If we cannot arrange for reimbursement policies favorable to our product candidates, their sales will be severely hindered. Product liability claims may damage our reputation and, if insurance proves inadequate, the product liability claims may harm our results of operations. Any claims relating to our improper handling, storage or disposal of biological, hazardous and radioactive materials could be time-consuming and costly. Our business and operations would suffer in the event of system failures. Risks Related to Our Common Stock Future sales of our common stock may cause our stock price to decline. Our stock price may be volatile. Our largest stockholders may take actions that are contrary to your interests, including selling their stock. Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

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1128495--3/3/2009--ANADYS_PHARMACEUTICALS_INC